Premier Pricing

In just under two weeks (8th February), the initial bids of the next round of Premier League football rights will be tabled. It’s always a fascinating time, of rumour, intrigue and speculation.  Just how high will the price go for the mother of all giffen goods?

As with the previous deals, there has been talk of significant increases in bid prices, both fueled by rumour of new entrants into the marketplace, but also due to changes to the package structure by the Premier League.

For the first time, over half of all Premier League games will be televised, which basically means, if you’re a season ticket holder to a major club, don’t expect to be watching your team at 3pm on a Saturday much longer. New packages and time slots mean late night Saturday games, together with full rounds of fixtures offered across three midweek periods, and a full fixture lineup over one bank holiday period.  For both the viewer and the broadcaster, there are significant changes afoot. 

These new slots have been seen as a way of enticing new entrants, such as Amazon, Facebook etc, into the domestic market. But given the times that these games are likely to be shown, it is potentially more likely that these packages will have international rights as the main part of their strategy, forcing games to be shown in the evening, UK time, to offer better viewing times stateside and therefore attracting higher international prices in the largest consumer market of them all.

But, going back to domestic rights, it really is anyone’s guess as to what the end value will be. The Business Insider recently suggested that they expect total rights to increase by a whopping 40% on the current £5bn paid by Sky and BT. Their justification is the apparent entry into the market by Amazon, something which was also suggested by Ampere Analysis. Interestingly, Ampere quote a direct Amazon representative suggesting they are interested in bidding. This is the first time there has actually been a confirmation from a third party that they were interested in bidding, which is significant.

Thinking about both of these claims. Business Insider is suggesting a 40% increase in rights, so, in effect an increase of £2bn for what is just an extra 32 televised games, or £21m a match. Obviously in reality the price differential is actually applied to all matches, so increasing the value of each and every match by a more reasonable £2m. But ultimately, what is the market for making this money back? The advertising model is just not going to cut it, so any new entrant without a subscription model is going to have to accept a loss leader on the £12m a match fee, with the gain being the opportunity to be a ‘disruptor’ in the UK pay-tv market. 

Which essentially leaves just Amazon. But again, let’s do the maths on this and go back to the Business Insider piece, which suggests that its model is to attract Premier League rights, force cord cutting and increase their subs to video, which is currently £79 a year. Recent BARB analysis clearly shows that existing Sky, Virgin and BT subscribers already over index significantly with Amazon subscribers, so, there is a good chance that even if cord cutting did occur (a big if I might add), then a significant chunk of these households would not be turning to Amazon Video, simply as they already have it. And further still, if Amazon were to want to get any sort of return on the investment, then the £79 a month fee would have to be significantly adjusted. Therefore, it is likely that if Amazon do come in, then it will be at the lower end of the scale, most likely for the new packages and at a value (per game) far below those currently being offered for current packages.

But what about the current incumbents, the ones that have, up to this point, actually got their wallets out? Will they succumb to the same worries as previously, blink first and up their bids? The better question might be, can they?

Taking Sky, after a difficult 2016, subs have held steady across 2017 with both subscribing households and sports subscribers relatively unchanged, as measured by BARB. Access to all the sports channels on Sky is £27.50 a month, although average household monthly rates are likely to be higher on the basis of HD upgrades etc. Generously, if we assume a household monthly cost of £32.50, and taking BARB data as a gauge, then there are 4.6m subscribing ‘sports’ households (including Virgin Media), meaning a ‘sports’ revenue of £1.8bn a year for residential channel subscription. Yearly costs of the current Premier League rights for Sky come out at £1.4bn (£4.176bn/3). Clearly there are other revenue streams, from commercial subs, Now TV (which incidentally BARB has identified strong growth in) and of course the pay-tv Youview platforms, but the point being that even the current deal squeezes Sky’s margins. If they were to increase their bid significantly, then this would have to be passed on to the customer ultimately, which in the current market, might just be a tipping point.

And what about BT? Well, the Champions League bidding has shown that they do still have appetite to be competitive, but likewise, they have also publicly stated that the rate of inflation in rights need to stop. Additionally, since that time, BT and Sky have come to agreements on content sharing of channels and there is general talk of a truce ahead of the auction. 

So, what might this all mean for overall rights prices? Well, there are new packages available, which, on any merit, will drive new revenue to the Premier League. But that said, the nature of many of the new packages are not necessarily conducive to the viewer. The mid-week and Bank Holiday packages in which all matches will be across a few days mean it is unlikely that a viewer will even be able to watch all the matches available to televise, as many of them will have to kick-off at the same time, a point made clearly by media commentator Adam Bowie last month.  Even with some potential new entrants (and to date, other than Ampere’s contact, remember that there has been no confirmed public interest), I can’t see, and I certainly wouldn’t recommend either Sky or BT upping their current bids by any significant margin. 

And lastly, a point that hasn’t really been discussed at all, do viewers actually want this? Nearly all top category games are already televised, so what do the viewers get in their extra 32 games? A Burnley away trip to Huddersfield perhaps? Ratings per game do change significantly by club, so the idea that a 20% increase in televised games will warrant a 20% increase in viewing (and therefore cost at least 20% more) is folly .  As Mitchell & Webb parodied, perhaps there is already too much football on TV?